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Economists see profit for Temasek

 
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Economists see profit for Temasek from Merrill stake sale
Singapore's Temasek Holdings could walk away with a profit from its stake in investment bank Merrill Lynch despite the Wall Street firm's battering by a housing crisis, AFP quoted economists as saying Tuesday.

"It still might work out well from their perspective," said David Cohen, of global research house Action Economics.

Bank of America announced Monday it was paying $50 billion in stock for Merrill Lynch, whose biggest shareholder is Singapore's state-linked Temasek.

If Temasek decides to sell its stake, it could gain $1.5 billion, according to an estimate by Ilian Mihov, an economics professor at graduate business school INSEAD in Singapore.

Since December, Temasek has invested billions of dollars in Merrill, whose shares tumbled about 78 percent over the past year on fears of widening losses from a meltdown in the subprime, or higher-risk, mortgage sector and a global credit squeeze.

Temasek's initial investment, covering $4.9 billion, came with a requirement that if Merrill raised more capital within 12 months at a price lower than the 48 dollars per share Temasek initially paid, it would be compensated for the difference.

That proviso kicked in for a subsequent Temasek investment into Merrill in July. The fund put that $2.5 billion compensation back into the bank along with another $900 million.

A Temasek spokesman told AFP it is too early to comment on the Bank of America deal. The Singaporean firm holds 13 to 14 percent of Merrill.

Temasek reported a record profit of S$18.2 billion ($12.7 billion) in the year to March. It has controlling stakes in major regional firms and is one of two Singapore government investment vehicles, along with the Government of Singapore Investment Corporation (GIC).

GIC has invested billions into Swiss bank UBS and US banking giant Citigroup, both of which are victims of the supbrime crisis.

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